Nykaa stock score: ‘Buy’. HSBC initiates coverage with 21% upside; check target price

Valuations are a key debate when discussing Nykaa stock price.
(Image: REUTERS)

Nykaa’s share price has greater than doubled from the IPO price of Rs 1125 per share to now commerce at Rs 2390 apiece. However, India’s magnificence and personal care e-commerce market is seen as the following huge progress story by analysts at HSBC who see greater than 20% upside for the stock from present ranges. “We believe Nykaa, a leading and already profitable online business, can dominate the market over the next decade,” HSBC mentioned in a notice. The brokerage agency has initiated coverage of the stock with a ‘buy’ score with a target price of Rs 2,900 per share.

Compelling play on magnificence and personal care

Nykaa is a platform business with 23 million registered customers and eight.5 million distinctive customers who make transactions on its platforms. HSBC mentioned that Nykaa is a uncommon mixture of robust, sustainable progress and marginal return on capital within the vary of 70-100%. “While the BPC category will likely grow at a CAGR of between 11% and 13% for the next decade, we see the online-BPC market expanding at a CAGR of 30%+,” HSBC mentioned. They added that Nykaa’s income may double each 2-3 years within the coming decade. 

Adding to Nykaa’s potential, HSBC mentioned that the company has proven over the past decade that it will probably compete within the hyper-competitive e-commerce market with giants like Amazon and Flipkart.

Are valuations costly?

Valuations are a key debate when discussing Nykaa stock price. Currently, Nykaa is buying and selling round FY24e PE of 317x on HSBC’s estimates or FY24x EV/gross sales of 14x. The brokerage agency believes Nykaa can nonetheless supply materials upside from right here. “Despite the sky-high valuation, we think e-commerce in beauty and personal care is at an early stage in India. In our view, a 10-year revenue CAGR of 25-30% is realistic and perhaps a conservative expectation for Nykaa,” analysts mentioned.

Bull, Bear and base case

Slower adoption of e-commerce, incapability to considerably develop its consumer base, excessive competitors, failure in scaling up style business are a few of the key dangers concerned with Nykka’s stock price. In such a bear case state of affairs the stock is anticipated to plummet to Rs 1,820 per share. Meanwhile, within the base case state of affairs, the stock is seen to scale to Rs 2,900 price target.

On the opposite hand, if E-commerce BPC 10 year CAGR comes at 34% with greater tempo of on-line penetration, and Nykaa grows in line with the class, HSBC Predicts a target price of Rs 3,690 per share.

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